The Benefits of Giving Families Cash

June 15, 2017

As every new parent knows or quickly finds out, children are expensive. With costs ranging from diapers to daycare, children can be a source of deep economic insecurity for low-income families, especially for women. President Trump’s childcare plan does nothing to alleviate the burdens of childcare on families across the country. The Dependent Care Savings Accounts that figure prominently in his plan assume that families have money to set aside for childcare – when the reality is that many families are living paycheck to paycheck. Through his child tax credit plan, 70% of the benefits of the plan will go to families who make six figures or more – not the vast majority of American households who earn less than that.

new report by Ioana Marinescu and the Roosevelt Institute shows that providing people with cash—with no strings attached—can be a highly effective way to address the financial burden that having a child places on families around the country. As the discussion around a “universal basic income” continues to grow, our research on unconditional cash transfers in the U.S. sets the record straight on common assumptions: when you give people cash, they don’t stop working or waste the money. Cash grants not only significantly benefit the lives of those who get the money, but also have positive effects on their children.

Our report, which synthesizes the results of three natural experiments that resemble a universal basic income in various ways, finds that across the board, the effects of cash on health and education–especially for children–are positive.

One of the programs studied was the Eastern Band of Cherokees dividend program, which has been paying out cash dividends from casino revenues between $4,000 and $6,000 per person per year since 1997. For children who receive money through the dividend program, the money is placed in a trust fund that they can access upon reaching adulthood, suggesting that cash may play an important role in wealth-building for communities of color – many of whom have historically been shut out of opportunities to build intergenerational wealth. Moreover, a longitudinal study found significant health benefits for children who received the dividend payments, as well as improved interactions with their parents, and reduced use or dependency on alcohol and drugs in adulthood.

Children who received the grants also stayed in school a year longer as a result of the dividend, and cash recipients of all ages in the dividend program were more likely to have good mental health. In communities with deeply entrenched poverty, such as those that received the cash payments, health and education outcomes are often the hardest to resolve through other public policies – which makes the case for cash all the more compelling.

Other experiments confirm these beneficial health outcomes – cash transfer recipients in Canada were less likely to experience hospitalization for mental health reasons, accidents, and injuries, and those in Indiana were more likely to have children with higher birth weights.

In a set of experiments at sites in six states and Canada in the late 1960s and early 1970s, the government guaranteed a living income to people with monthly cash grants that declined in size as the recipient earned more money. Researchers found that compared to those who did not receive cash, children who came from families that received cash grants had higher school attendance, grades and test scores. The impact on test scores was especially high for children from lower income schools.

In the Canadian version of the experiment, researchers found that children from families who received cash were less likely to drop out of school, as families were no longer reliant on their children working part- or full-time to stay afloat financially. As Marinescu writes, many of the positive effects on children might be because parents can buy better food or books, or they may be able to spend more quality time with children. The experiments in two rural states show positive impacts on nutrition, suggesting increased spending on food.

Finally, examining the labor market effects of the cash dividend program in Alaska highlights the importance of productive work in the informal sector, such as caring for and raising children. In the Alaska program, where anyone who has lived in the state for at least a year gets a cash grant based on the state’s oil revenues, cash payments don’t reduce the number of people in the labor force relative to population. Interestingly, the share of people working part-time in the state increased. We can only speculate for the reason that people begin part-time work when they get more money, but it is certainly possible that they move their labor market activity into other productive work such as childcare.

Nearly every developed country in the world gives money to parents to help with the financial burden of raising children, and the evidence shows that the beneficial effects of giving families cash in the U.S. could be large. As the call for a universal basic income grows, we should remember that our families are the backbone of our economy and society. Parents do hours of unpaid labor per year that benefits all of us, and they deserve a share of our collective resources to cover the costs of caring for our future. The better off parents and children are, the better off we will all be. It’s time to give all parents what they need for their families to thrive, not just those who are privileged enough to benefit from Trump’s tax code.